Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

The California Department of Corrections (CDC) is responsible for the
incarceration, training, education, and care of adult felons and nonfelon
narcotic addicts. It also supervises and treats parolees released to the community.

The budget proposes total expenditures of $5.3 billion for CDC in
2004-05. This is $447 million, or about 7.8 percent, below the
revised estimate for current-year expenditures. Proposed General Fund
expenditures for the budget year total $5.2 billion, an increase of
$413 million, or 8.7 percent, above the revised current-year
estimate. This increase reflects additional funds to offset $852 million
in one-time federal funds received in the current year, as well as increases in
department positions, parole population, and health care costs. These General
Fund costs are partially offset by projected declines in the inmate population
due to policies enacted in the 2003-04 Budget Act.

The California Department of Corrections has experienced spending
deficiencies in recent years and recently projected a current-year deficiency
of $540 million. We report on the department's deficiency below and
recommend that the Legislature require the department to submit a plan to
address its ongoing deficiencies.

In October 2003, the CDC announced that it anticipated a budget deficiency
of over $540 million for the current year. The Governor's budget
recognizes $493 million of this deficiency, leaving an unfunded amount of
$50 million. This latter amount includes items projected to be underfunded
in the current budget—such as overtime and workers' compensation—which are
partially offset by salary and program savings. Figure 1 shows the
components of the department's deficiency.

Items Included in Governor's Budget—$493 Million. The 2004-05
Governor's Budget document indicates that the administration proposes to
fund $493 million of the deficiency identified in October 2003 by CDC.
This includes funding salary and retirement costs that were not included in the
2003-04 Budget Act. It also includes higher-than-anticipated population
because the current budget overestimated the decline in the in mate population
resulting from policy reforms and underestimated the number of new admissions
to prison.

Salary
Increases—$174 Million. The Governor's budget proposes
$174 million to fund the department's current-year salary increases.
It is important to note that the 2003-04 Budget Act did not include
salary increases for any state department. This is because the budget
assumed that employee compensation contracts would be renegotiated, or
departments would absorb the costs of any remaining increased salary costs
through cuts in other programs. However, the prior administration was
unable to negotiate lower salaries for correctional officers, and neither
the prior nor current administration approved sufficient current-year cuts
to CDC's budget to absorb the full costs of the salary increases.

Retirement
Costs—$179 Million. Retirement costs were not included for
any state department because the 2003-04 Budget Act assumed that a
pension obligation bond would fund the state's retirement contributions.
However, a state superior court has ruled that pension obligation bonds cannot
be issued without voter approval. Therefore, the Governor's budget also
proposes $179 million to fund department retirement costs in 2003-04.

Overestimated
Population Savings and Underestimated New Admissions—$139 Million.
The current-year budget assumes savings due to policy changes designed to
reduce the number of nonviolent inmates, including education and
day-for-day credits in reception centers, drug treatment furloughs, and
intermediate sanctions for nonviolent parole violators. The department
will be unable to achieve most of these savings in the current year
primarily because the savings estimates did not account for overlap in the
populations affected by the reforms. The department is also experiencing moderately
higher-than-projected new admissions to prison.

Items Not Included in the Governor's Budget—$50 Million.
The Governor's proposed budget does not include funding for the remainder of
the department's October request, a net amount of approximately
$50 million. This includes items that have generated deficiencies in past
years, offset by savings primarily from department vacancies.

Ongoing Operational
Deficiencies—$240 Million. Approximately $240 million of
the department's announced deficiency reflects on-going shortfalls in
spending authority for overtime, temporary help, workers' compensation,
medical supplies, and contract medical personnel, as well as unfunded
merit salary increases for department employees. Each of these items is a
source of a recurring structural deficiency, suggesting an inability of
the department to fully fund these activities within its allocated budget.

Offsetting Salary and
Program Savings—$190 Million. The department anticipates
being able to offset the $240 million in budget shortfalls with
expected savings of about $190 million from the institutions, inmate
health care, and parole programs. Most of these savings are from the
department's approximately 2,700 unfilled vacancies.

Analyst's Recommendation.The Governor's budget summary
suggests that it will offer a proposal as part of the May Revision to better
control aspects of the department's fiscal management. The Legislature should
direct CDC to include as part of its cost control proposal, a plan to address
those items which have traditionally driven deficiencies in the department's
budget. In particular, the proposal should identify ways to bring spending on
overtime, temporary help, worker's compensation, and medical costs in line with
the department's budget, as well as to identify other sources of offsetting
program savings.

The budget proposes a significant unallocated reduction in
corrections. The administration has indicated that it will provide details of
the proposal as part of the May Revision. Given the size of the proposed
reduction, we recommend that the Legislature request the administration to
provide the specifics of the plan prior to the May Revision in order to allow
the Legislature adequate time for review. In this piece, we identify issues for
the Legislature to consider as it reviews the administration's forthcoming
proposal.

The Governor's budget proposes a $400 million unallocated reduction in
corrections. Given that CDC is by far the largest department in the Youth and
Adult Correctional Agency, it is likely that most of this amount will need to
be achieved through reductions in CDC's budget. Without prejudice to the
administration's forthcoming proposal, we believe there are issues the
Legislature should take into consideration as it examines the budget for the
department.

Department Costs Are Largely Driven by Population and Labor Costs.
The department's budget is primarily determined by the projected number of
inmates that will be housed in its prisons, and on the number of persons
projected to be on supervised parole in the community. Based on these
projections, the department determines how many staff are required to (1) supervise
this population and (2) provide other mandated services such as education and
health care services. Thus, the most important determinates of the costs to
operate CDC are the numbers of inmates and parolees, the level of compensation
for correctional officers and other custodial staff, and the types and levels
of services provided. Therefore, in order to achieve significant
reductions in the budget for corrections—as proposed by the
administration—consideration must be given to reducing the number of individuals
in state custody, the labor cost of providing security and community
supervision, or the types and levels of services provided.

Population-Related
Savings and Public Safety. Population savings can be achieved in
two ways: (1) bringing fewer individuals into the system by changing
sentencing laws and (2) releasing more individuals out of the system
through early or accelerated release programs. In considering reductions
to the inmate and parole population, we have recommended in the past that
the Legislature focus on nonviolent and short-term inmates to minimize the
impact on public safety. The Governor's budget already assumes a
significant level of population-related savings from parole reforms that
are being implemented in the current year. Because these reforms already target many
of the nonviolent inmates in the system, the additional savings that can
be achieved through population reduction proposals of nonviolent and
short-term inmates has been narrowed.

Labor Costs Savings
Require Successful Contract Renegotiation. The administration has
indicated that it plans to renegotiate the state contract with the
correctional officers' union. We agree there is potentially a significant
level of savings that can be achieved through contract renegotiations. For
example, as part of our analysis of the department's overtime problem, we
recommend that the Legislature direct the Department of Personnel
Administration to renegotiate provisions that increase overtime. In
addition, in our evaluation of the administration's request for 1,239
relief positions—discussed later in this analysis—we note that
renegotiating training-related provisions of the correctional officer
contract could generate significant state savings. While we believe such
savings can be achieved if there is a contract renegotiation, we would
note that such negotiations need to occur in a timely manner in order to
achieve the maximum benefit in 2004-05, and to provide the Legislature
sufficient time to review the full fiscal impact of the agreement.

In our The 2004-05 Budget: Perspectives and Issues publication, we
offer options for CDC budget savings. These options primarily include
sentencing reforms aimed at more rapidly transitioning low-risk offenders into
the community.

Administrative Efficiencies. Based upon the Governor's budget,
we expect the proposal for achieving $400 million in savings to include
specific plans for achieving administrative efficiencies, such as closing
institutions, contracting out for certain services, and improving fiscal
control and accountability within the department by developing systems to
identify costs at the institution level which can be reduced. We agree that
there are opportunities for savings from these types of proposals, but the
feasibility of implementing some of these proposals will depend on the
department's successful implementation of changes that are already assumed in
the budget. For example, prison closures would be possible if the current-year
parole reforms being implemented actually achieve the population reductions
assumed in the budget. Likewise, cost savings through better internal controls
are possible if central management, as well as wardens and other prison
administrators, have adequate tools to track expenditures. In addition, we agree
there may be opportunities to reduce costs for certain services, such as health
care, mental health, and pharmacy by contracting with private entities for the
delivery of these services. However, the department's ability to contract for
some services may be limited under current law, and thus require voter approval
of the administration's proposed constitutional amendment to expand the
circumstances under which the state can contract with private entities.

Administrative Feasibility of Achieving Additional Major Savings in
2004-05. The department already is in the process of implementing
several major reform proposals. Any new proposals submitted by the
administration to reduce costs by the level assumed in the budget may
experience delays due to the current workload limitations of existing staff.

Historically, the department has had a poor record of accomplishment in
implementing changes. In fact, the department is currently experiencing delays
in implementing reforms that were adopted as part of the current-year budget.
The delay is caused by a number of factors, including the freeze on hiring and
contracting and the need to negotiate with employee unions on certain
components of the reforms. However, other factors that affect the department's
ability to implement change are its sheer size and decentralized
nature—including 32 institutions and 185 parole offices spread across the
state, as well as the autonomy of individual institutions.

During its review of the administration's proposal, we recommend the
Legislature realistically assess CDC's ability to fully implement changes that
are proposed as part of the administration's $400 million proposal.

Summary. The details of the proposed $400 million
unallocated reduction are unknown. Given the magnitude of the proposed
reductions, we recommend the Legislature request the administration to provide
the details of the plan before the May Revision. Furthermore, without prejudice
to the administration's forthcoming proposal, we have concerns about the department's
ability to achieve this level of savings in 2004-05 in light of major changes
that are already underway, and the time it takes to implement significant
changes in a department the size of CDC. We recommend the Legislature take
these issues into consideration when assessing the department's ability to
achieve the Governor's proposed savings in 2004-05.

The California Department of Corrections is projecting the inmate
population to decline substantially in the second half of the current year and
into the budget year. These declines will be accompanied by a commensurate
increase in the parole population.

Inmate Population Decrease. As of June 30, 2003, the CDC
housed 160,931 inmates in prisons, fire and conservation camps, and community
correctional facilities. The CDC projects the inmate population to decline to
148,390 by June 30, 2005, a decrease of over 12,000 inmates. This projected
decline by mid-2005 is primarily the result of a series of policy reforms
enacted as part of the 2003-04 Budget Act, which includes programs to
restructure parole, inmate education, and substance abuse treatment. (See The
"New Parole Model" later in this chapter.) In the absence of these
reforms, the inmate population would have increased to over 163,000 inmates
because of a recent trend of moderately increasing new admissions to prison.
Under the policy reforms, the prison population is projected to decline to its
mid-1990s levels, creating the first substantial drop in the state's inmate
population in at least 20 years. Figure 2 shows the year-end inmate and
parole populations for the period 1993 through 2005.

Parole Population Increase. As of June 30, 2003, the CDC
supervised 116,173 persons on parole. As shown in Figure 2, the CDC
projects the parolee population to increase to 124,224 in 2005. This increase
is a result of the current-year policy reforms designed to reduce parole
revocations. This means that the affected parolees will stay in the community
longer (instead of being returned to prison), thereby having the effect of
increasing the total parole population. The projected parole population will be
the largest in state history.

Implications of Population Changes. The decline in the inmate
population will affect the department's housing plan, allowing CDC to consider
options that include closing prisons, moving inmates out of dormitory-style housing
units, and reducing the use of Community Correctional Facilities. In addition,
the reforms will reduce the number of parolees revoked and housed in local
jails and state reception centers.

Potential Risks to Accuracy of Projections. As we have indicated
in past years, the accuracy of the department's latest projections remains
dependent upon a number of significant factors. These include:

Changes in sentencing
laws and the criminal justice system adopted by the Legislature
and the Governor or through the initiative process.

Delays in the
implementation of current-year budget reforms, including ongoing
problems with the department in (1) contracting with providers of parolee
services such as drug treatment, (2) hiring and training staff due to a hiring
freeze, and (3) negotiating with employee unions regarding certain
components of the reforms.

Changes in the local
criminal justice system affecting the number of persons arrested,
charged, tried, convicted, and ultimately admitted to prison.

Changes in the crime
rates, especially for violent crimes, that could cause growth in
the inmate population to differ from the latest CDC projections.

Significant changes in any of these areas could easily result in a prison
growth rate higher or lower than the one contained in CDC's projections.

We withhold recommendation on the 2004-05 budget request for caseload
funding. Recent delays in the implementation of policy reforms included in the 2003-04
Budget Act may result in increased prison population above what is assumed
in the proposed budget. We will continue to monitor the caseload and program
implementation and recommend further changes, if necessary, following review of
the May Revision.

Due to the delays in implementing current-year policy reforms designed to
reduce the inmate population by January 1, 2004 the department will be unlikely
to achieve the full current-year and budget-year population reductions assumed
in the Governor's budget. The department has not yet released updated
population projections that include the impact of these delays nor their
corresponding budgetary impact.

Pending release of the policy reform implementation schedule and revised
population estimates, we withhold recommendation on the 2004-05
caseload-funding request. We will continue to monitor CDC population, and make
recommendations as appropriate at the time of the May Revision.

The 2003-04 Budget Act included several policy changes designed
to reduce the number of parolees returned to prison. These changes, referred to
as the "new parole model," include the provision of prerelease
planning, reentry services, and intermediate sanctions for some inmates and
parolees. In this piece, we review the policy changes and their estimated
effect on the inmate and parole populations and the resulting state fiscal
impact. We make several findings about the policy changes, including concerns
about implementation delays, and provide several recommendations.

California operates the largest state parole system in the country with the
CDC supervising over 110,000 parolees at any given time. The purpose of parole
is twofold, to protect public safety by supervising recently released felons
and to assist parolees in successfully reintegrating into communities. When an
inmate is released from a California state prison, he/she is required to report
to his/her parole agent and abide by the conditions of parole, including
following all laws. The parole agent is responsible for monitoring the
activities of the parolee, assisting the parolee to access programs and
services such as drug treatment and job placement programs, and taking
appropriate action if the parolee presents a danger to the public or oneself.

California parolees have the highest rate of returns to prison in the nation
with over 55 percent of all parolees returned to prison within two years
of release. California has the second lowest level of parole success, with only
21 percent of parolees completing their term on parole supervision without
being returned to prison or absconding.

Approximately 80 percent of the parole violators returned to prison are
sent back by way of the administrative revocation process, often for
noncriminal violations, often referred to as "technical violations."
The remainder of parole violators are convicted of new crimes and sent back to
prison by the courts.

Researchers have attributed the high parolee failure rate in California to a
number of factors, including few programs and services available to assist
parolees with reintegration, few alternatives to revocation for parolees who
violate their conditions of parole, a failure by CDC to adequately prepare
inmates for release, and an emphasis on parolee punishment rather than
reintegration.

While there is a clear public safety benefit associated with incarcerating
felons and isolating them from society, there are also significant costs
associated with parolee failure and revocation. First, the state incurs average
prison costs of over $10,000 for each parolee who is returned to prison,
costing the state almost $900 million in incarceration costs each year. In
addition, researchers have noted other, often less fiscally tangible, costs
associated with parole failure. These costs include local law enforcement and
court costs, harm to victims and their property, loss of financial and social
support to children and families of the incarcerated, and loss of tax revenues
from revoked parolees who otherwise could be working.

As part of the 2003-04 Budget Act, the Legislature required CDC to
institute a number of parole-related reforms designed to decrease the number of
revocations, reduce parolee recidivism, and save the state money. In response,
the department designed a series of prevention and intervention strategies,
including the institution of prerelease planning, reentry services, and
intermediate sanctions. While not all research on these types of programs is
conclusive, many evaluations do suggest that these types of efforts can cost
less than returning a parolee to prison, and in some cases can significantly
reduce recidivism when combined with services aimed at addressing substance
abuse, employment, and other needs of parolees. California's new programs are
described in greater detail below.

The CDC will dramatically expand its use of prerelease planning for inmates
soon to be released into the community. The first element of the prerelease
program involves the use of a needs and risk assessment of inmates before they
are released from prison. This assessment, which will be given to approximately
60,000 inmates, will accomplish two tasks: (1) it will use information
collected about each inmate's personal and criminal history to identify what
programs and services would benefit the inmate after his release and (2) it
will project the likely risk that the inmate will reoffend. The results of the
needs and risk assessment will be provided to the inmate's parole agent prior
to the inmate's release. With this information, the agent will be better
prepared to provide the types and levels of services and supervision
appropriate for each parolee.

The second element of the prerelease program includes the improvement and
expansion of existing prerelease classes to approximately 60,000 inmates
released to parole each year. These classes will be mandatory for all
inmates nearing the completion of their felony term. Revoked parolees will not
be required to participate. In addition, the new prerelease classes will cover
a broader range of topics and materials than the program in the past which sometimes
has been limited to providing information packets to inmates. In past years,
approximately 30,000 inmates participated in voluntary prerelease
programming.

Finally, the new prerelease program will be operated by the department's
parole division with the assistance of contracted social workers, rather than
the department's prison employees as is done currently. The department hopes
that parole agents and social workers will be better able to prepare the
inmates for success on parole and in the community.

The CDC projects that the new prerelease program, in combination with the
use of reentry services (see below), will reduce parolee recidivism by
5 percent statewide. The department estimates that over 3,000 fewer
parolees will return to prison, thereby saving the state $17 million
annually in incarceration costs. This estimate does not include implementation
costs which are likely to be significant.

The department currently operates Police and Corrections Teams (PACTs) in 15
parole districts. These teams are partnerships between CDC, local law
enforcement agencies, and community service providers and are designed to
coordinate the supervision of and services for parolees. For example, some
parole districts operate a PACT Parolee Orientation where a number of local
service providers come to parole offices at one time to educate parolees about
services available in the community, such as health, housing, and employment
services.

The 2003-04 Budget Act expanded the use of PACTs to all 25 parole
districts and provided funding to staff each PACT with a Community Resource
Coordinator. The coordinator acts as the liaison between the parole office and
community service providers and recruits their participation in the PACT
Parolee Orientation. Participation in the orientation will now be mandatory for
all released parolees. The department believes that the use of the PACTS and
the orientation will provide parolees with an improved opportunity to take
advantage of community resources, such as health, housing, and employment
services, that can assist in successful reintegration.

The current budget also funds the expansion of the department's Transitional
Case Management Program for mentally ill parolees. This program allows for the
continuation of mental health services on parole for all offenders who were
diagnosed with a mental illness while in prison. Specifically, these parolees
will receive ongoing psychiatric treatment and case management services at the
department's 73 parole outpatient clinics (POCs). Research demonstrates that
the receipt of mental health services can be critical to the successful
continuation and completion of parole for mentally ill offenders. For example,
one analysis conducted by CDC
staff indicates that mentally ill offenders who received POC and case
management services stayed in the community longer than similar offenders. The
CDC projects that over 5,000 new parolees will receive POC services under the
program expansion and the resulting reduction in recidivism will reduce state
incarceration costs by $14 million each year, not including offsetting
implementation costs.

Intermediate sanctions are punishments administered by parole agents in the
community for parolees who violate the conditions of their parole and minor
violations of the law. Intermediate sanctions are designed to give parole
agents a broader range of punishment options for parolees who commit these
violations. In the absence of intermediate sanctions, agents are generally
faced with the choice of returning the parolee to prison—sometimes seen as too
severe of a punishment for minor violations—or administering no punishment at
all.

The administration will redesign and expand some existing programs to be
used as intermediate sanctions. The intermediate sanctions adopted include
electronic monitoring, Community Correctional Reentry Centers (CCRCs), and
Substance Abuse Treatment Control Units (SATCUs). The CDC estimates that over
30,000 parole violators will be assigned to these intermediate sanctions each
year, reducing prison operating costs by over $100 million. These
sanctions are described in more detail below.

Expanded Use of
Electronic Monitoring. Electronic monitoring refers to the use of
a device that alerts the parole agent when the parolee wearing the devise
is no longer within a defined distance from his home. Typically, parolees
are allowed to leave their home at prescheduled times for work, treatment,
and other activities sanctioned by their agent. The department has used
electronic monitoring technology for some time. However, it has been used
solely as a condition of parole to monitor a small, select group of
potentially dangerous parolees, including sex offenders. Under the new
intermediate sanctions program, electronic monitoring will be
significantly expanded and will be used for nonviolent and nonserious
parolees who commit parole violations. The CDC estimates that each year
approximately 8,000 parolees will be required to use electronic monitoring
devices for up to 45 days. The CDC estimates that use of electronic
monitoring will cost an additional $5 per day per parolee.

Conversion of CCRCs. The
CCRCs were originally established as work furlough programs for inmates
being released from prison. Under the new parole program, these secure
housing facilities will be converted to residential intermediate sanction
programs operated by community-based organizations under state contracts.
At the CCRCs, parolees will participate in various programs including
substance abuse treatment, stress and anger management, victim awareness,
computer literacy, life skill, and employment training programs. Parole
agents can place nonviolent parole violators in CCRCs for up to 120 days,
and the department estimates that approximately 8,000 parolees will be
placed in CCRCs for an average of 45 days each year. Because of the
programming provided, CCRC beds are more expensive to operate on a per day
basis than prison beds. However, CDC projects savings from this reform
because parolees will be in CCRCs for a shorter period than had they been
revoked to prison and the programs will better prepare parolees for
success in the community.

Expanded Use of SATCUs.
Some SATCUs have been used by CDC in the past simply as short-term
"dry-out" beds in jails and reception centers for parolees with
substance abuse problems. Under the parole reforms, SATCUs will still be
for parole violators with substance abuse problems, but their use will be
dramatically expanded with an estimated 16,000 parolees assigned each
year. Parolees assigned to SATCUs will participate in a 30-day residential
drug abuse program at local jails, followed by a 90-day aftercare
treatment program in the community.

The implementation of the new parole policies should significantly
reduce the number of nonviolent parolees returned to prison, thereby generating
substantial state savings. However, we find that there have been implementation
delays that will significantly limit the impacts of these programs in the short
term, and that further opportunities exist to expand these parole programs to
generate state savings. Based on our findings, we recommend that CDC provide
the Legislature with an updated implementation plan at budget hearings. We
identify further opportunities for expanding the existing parole reforms. We
discuss our findings and recommendations in more detail below.

The current budget assumes implementation of the prerelease, reentry
services, and intermediate sanctions reforms by January 1, 2004. The mentally
ill parolee program was scheduled to phase in implementation beginning on July
1, 2003. However, statewide freezes on hiring and contracting have delayed the
implementation of all elements of the parole reforms. Currently, CDC expects to
have these programs operating by March 1, 2004. The delays will limit the
ability of the department to use these programs to reduce the inmate population,
thereby limiting the actual savings that will be achieved from these reforms,
particularly in the current year.

At the time this analysis was prepared, the department had been unable to
provide an updated estimate of the impact of the implementation delays on the
inmate population and its budget. The department currently plans to submit
information regarding the impact of the delays on population and budgeted
savings as part of the May Revision and after the completion of the spring
population projections. However, this will provide a very limited time for
legislative review. Therefore, we recommend that CDC provide the Legislature
with an updated implementation plan for the parole reforms at budget hearings,
including the population and fiscal impacts of delays.

While the current parole reforms begin to bring the state's parole system
more in line with research findings and other states' policies for reducing
parolee recidivism, there remain further opportunities to improve the parole
system. These additional opportunities include broadening the eligibility of
prerelease planning and intermediate sanctions and incorporating additional
intermediate sanctions. These program expansions could further reduce the
institution population and state costs while continuing to provide public
safety. These program opportunities are described in greater detail below.

Expand Eligibility for Prerelease Planning. Under the new
parole policies, all inmates approaching the end of a new felony term will be
required to participate in prerelease programming. In other words, all new
commitments and parole violators with new terms will participate. We believe
the prerelease planning services may benefit a broader group of inmates, in
particular those who are serving time for a parole violation. While fewer
parole violators will be in prison if the intermediate sanctions and other
parole reforms work as intended, there will still be as many as 50,000 such
inmates in the system. Moreover, those parolees who do return to prison may be
a subgroup of inmates most in need of additional programming given their
history of parole failure. We estimate that even a modest decrease in returns
to custody for this population could save the state several million dollars.

Expand Eligibility for Intermediate Sanctions. Under the
parole reforms currently being put in place, intermediate sanctions will be
used as an alternative to prison for parolees with nonviolent and nonserious
criminal histories. However, research demonstrates that some factors other than
criminal history—for example, age or completion of certain prison programs—have
been shown to be statistically relevant factors in predicting future
criminality. Therefore, there may be some inmates who do not qualify for
intermediate sanctions under the current policy for whom incarceration may not
be the most cost-effective alternative in the event of a parole violation.
However, revocation would remain the appropriate response for many parolees,
such as those with a recent history of violent crime or sex offenses.

Expand Intermediate Sanctions and Graduated Sanctions. We
surveyed the literature to identify other potential intermediate sanctions that
could be implemented in California. We found that many other states are
utilizing intermediate sanctions in addition to the ones adopted under the 2003-04
Budget Act, including community service, day fines, intensive supervision,
and day reporting centers. Research suggests that alternative sanctions such as
these can be less expensive than revoking a parole violator to prison and, when
combined with treatment and service programs, can reduce recidivism by as much
as 25 percent.

In addition, expanding the types of alternative sanctions available to
parole agents and parole violators will allow more opportunities for agents to
match an appropriate level of sanction with a parolee given the characteristics
of the parolee, his or her criminal history, and the nature of the parole
violation. In fact, the current array of intermediate sanctions may not be the
most effective or appropriate for all violators. For example, the use of
community service or fines might be a more appropriate response for an employed
parolee who commits a single technical violation than more restrictive
sanctions such as confinement in SATCUs or CCRCs.

Offering a greater array of sanctions will also allow the department to
establish a system of graduated sanctions for repeat violators. Graduated
sanctions allow agents to increase the severity of punishment in response to
increased frequency or severity of parolee infractions with the expectation
that some parolees will curtail their violations to avoid the increasing
penalties for their behavior. Prison would still remain a punishment option for
offenders. The expanded use and/or eligibility of intermediate sanctions to
even a few hundred additional parolees would save the state several million
dollars.

While there could be a couple million dollars in implementation costs to
expand the use of prerelease planning and intermediate sanctions, these reforms
could generate net General Fund savings by further reducing the inmate
population. In view of the potential to increase General Fund savings while
protecting public safety, we recommend that the Legislature direct CDC to
provide an estimate of the fiscal impact of these proposals. Based on this
information, the Legislature may wish to direct the department to phase in the
above described expansions during 2004-05. Because the department is already
implementing several new programs, the program expansions recommended here may
also experience delays due to workload limitations on existing staff. However,
we believe that these expansions merit consideration because of the General
Fund savings that would be generated when implemented.

Despite recent oversight and administrative efforts by the Legislature
and the Department of Corrections (CDC), the department's overtime expenditures
are expected to remain over $230 million in the current year. In this
analysis, we provide background information on this issue, then an update on
the current status of overtime, and finally recommendations for controlling
departmental overtime.

The CDC has over 45,000 positions funded at almost $3.5 billion in the
current year. Of those positions, approximately half are "posted"
positions in the institutions. Posted positions are those that provide supervision
of and services for inmates at state prisons. For example, most correctional
officer positions and many medical positions are posted.

Overtime expenditures occur when a posted position is unfilled or when the
employee who regularly fills that position is absent. In either case, when
another employee fills that position by working hours in excess of his or her
own scheduled hours, the department pays that employee at a rate of 1.5 times
his or her salary for each hour of overtime worked.

Figure 3 shows the department's overtime expenditures over the past five
fiscal years, from 1999-00 through 2003-04 (projected). It shows that annual
CDC overtime expenditures rose almost $50 million between 1999-00 and
2002-03. These expenditures reached a high of $263 million in 2001-02 and
declined $26 million in 2002-03. The decrease in overtime expenditures
occurred primarily in the Institutions and Community Correctional (Parole)
programs and is expected to continue—though remaining over $230 million—in
the current year.

We recognize that it is not unusual for departments to have some overtime,
but the growth in and persistent nature of the overtime expenditures by CDC
suggests that the department has a continuing problem. Overtime expenditures
are a significant contributor to the department's annual deficiency. In
2002-03, for example, CDC spent approximately $45 million more for overtime
payments than it was budgeted. The department projects its current-year
overtime deficiency to exceed $50 million.

High overtime usage may also result in increased workers' compensation
costs. This is because working overtime can lead to employee fatigue and
injuries, resulting in increased workers' compensation claims. The CDC's
workers' compensation costs are projected to be approximately $200 million
in the current year. However, the department is unable to identify how much of
these costs were attributable to employees working overtime.

Past reports by our office, the Bureau of State Audits, and the Department
of Finance identified several drivers of overtime costs within CDC, including
correctional officer vacancies, inadequate numbers of relief positions, use of
overtime to cover for sick leave and other paid leave programs, and inadequate
management controls and oversight. Prior to 2002-03, between 10 percent
and 15 percent of officer positions in CDC were vacant. Prison
administrators typically had the option of using relief officers—specifically
designated to fill otherwise unfilled positions—or overtime to fill vacant
positions. Using relief officers is a less costly alternative than overtime because
relief officers are paid at their base salary rather than 50 percent
above, and many relief officers are newer officers paid at the lower wage
range. However, there were too few relief officers available at most
institutions to fill all vacancies. Instead, administrators relied more on
using overtime.

As with vacant positions generally, posted positions vacant due to sick
leave must be filled by another officer. Prison administrators often used
overtime to fill positions left vacant by sick leave. Sick leave was a driver
of overtime expenditures for the department because correctional officers'
average use of sick leave was significantly higher than non-CDC state
employees—6.5 hours per month compared to 4 hours. In addition, a report by the
Bureau of State Audits in 2000 found that the department failed to effectively
manage paid leave programs, such as holiday, vacation, and sick leave,
resulting in excessive overtime and other costs. In particular, the report
cited the failure of the department to collect and analyze personnel data from
institutions, information that could be used to more effectively manage and
direct personnel resources.

The Legislature and CDC have both taken steps to address the issues driving
departmental overtime costs. In particular, the Legislature has focused its
efforts on filling posted positions. For example, in 2000 and 2001 the
Legislature authorized the expansion of CDC's training facility in order to
provide the department with more correctional officers to fill vacancies
in posted and relief positions. As a result, the statewide correctional officer
vacancy rate fell from 12 percent in 2001-02 to less than 2 percent
at the end of 2003.

The CDC made changes in recent years in an attempt to better manage
overtime. In general, these efforts have focused on collecting and analyzing
fiscal and personnel management information. The department now (1) performs
annual fiscal reviews of each institution, including overtime expenditures; (2)
operates overtime/sick leave management committees in every institution; (3)
uses the Watch Office Tracking System at each institution to provide daily,
weekly, and monthly expenditure reports to central management, including
overtime expenditures; and (4) operates the Resources Review Team within the
Financial Services Division to coordinate personnel management practices and
gather information. The department has also submitted a Feasibility Study
Report to support its proposed Business Information System project which is
intended to be a department-wide personnel and budget management data system.

While the problem of the California Department of Correction's
overtime expenditures has been discussed in past reports, our analysis
identifies ways that provisions of the correctional officer contract and the
missions of different institutions contribute to what remains an ongoing
overtime problem. These findings are discussed in greater detail below and are
based on information provided by the department, visits to prisons, and
discussions with prison administrators and staff.

As discussed above, progress has been made in some areas, in particular
filling correctional officer positions. However, there remain a high number of
vacancies in other posted positions that prison administrators often fill with
overtime. For example, the vacancy rate for sergeants and lieutenants is
approximately 8 percent, and each of these vacancies is more costly than an
officer vacancy because of the higher pay earned by correctional supervisors.
In addition, over 23 percent of the department's posted medical
positions—including registered nurses and medical technical assistants—are
vacant. The department believes that these vacancies are the result of
inadequate salaries to compete with outside medical facilities. Figure 4 (see
next page) shows vacancies and overtime expenditures for selected CDC posted
positions in 2002-03. While the single position that is the biggest driver of
overtime expenditures is correctional officers, the department spent almost
$60 million in overtime costs on the other four classifications of posted
positions listed here.

Several provisions of the current correctional officer contact result in
increased overtime costs. One such provision is the contract requirement that
senior officers have the first opportunity to work overtime shifts. This
provision results in higher overtime expenditures than if overtime hours were
more evenly distributed among all officers because senior correctional officers
have higher base salaries than junior officers. Also, the contract limits the
number of hours that Permanent Intermittent Correctional Officers (PICOs) can
work as well as the number of PICOs that institutions can hire. The PICOs are
relief officers that institutions can call to temporarily fill vacant
positions. These officers typically have lower salaries than full-time officers
and, therefore, are less expensive when addressing overtime requirements. In
addition, the annual salary increases required by the contract between 2003 and
2006 will contribute to the department's overtime costs. This is because as the
salary of correctional officers rises, the cost of paying overtime—at 1.5 times
that salary—will rise proportionately.

According to the department, a significant increase in sick leave use by correctional
officers can also be attributed to the current bargaining contract as a result
of two factors. First, the current correctional officer contract
eliminated the Extraordinary Use of Sick Leave program that institutions
previously used to track and identify sick leave abuse. Second, the new
contract changed how sick leave counts towards officers' 40 hours of work each
week, making it easier for officers to earn overtime after having taken sick
leave. Sick leave use by correctional officers has risen approximately
25 percent since 2000 to an average of 8.3 hours per officer per month.
The department estimates that it spent over $80 million for overtime in
2002-03 to cover sick leave.

Spending for overtime by each of the individual prisons varies considerably,
ranging from approximately $3 million to over $15 million in 2002-03.
This wide variation suggests that overtime expenditures may be in part a
reflection of institution-specific factors and activities. In order to evaluate
this variation, we used a regression analysis which suggests that the variation
in overtime expenditures is related to differences in custody level, assault
incidents, and special missions at each prison. Below we illustrate how each of
these factors contribute to overtime costs.

Custody Level. For the purpose of distinguishing those inmates
who are most dangerous, violent, and a threat to escape, CDC classifies inmates
on a scale of I through IV with a Level IV inmate being considered the most
dangerous or highest threat to escape. The CDC houses inmates in prison housing
units with a corresponding ranking designed to ensure the appropriate custody
level. The 17 institutions housing Level IV inmates (including San Quentin
which houses condemned inmates) average 34 percent more in overtime costs
than the other 15 institutions when we control for inmate population. Overtime
expenditures are generally related to the security level of institutions
because the most dangerous and violent inmates require additional guarding and
are the inmates most likely to engage in assaults and other incidents (see
below).

Assault Incidents. The five prisons with the highest number of
recorded assault incidents in 2002 averaged 72 percent more in overtime
costs than those five prisons with the fewest assaults when controlling for
differences in population size. Inmate incidents, particularly violent ones,
often require officers and other staff to complete additional paperwork and
provide additional security coverage as a precaution against an escalation of
the incident. To the degree that assaults lead to additional workload, officers
are likely to work overtime hours to complete these tasks.

Special Missions. Several prisons have special missions that they
are required to carry out in addition to custody and standard services and
programming. Nineteen prisons fulfill at least one special mission, including
operating reception centers, security housing units, correctional treatment
centers, psychiatric services units, and fire camp training. These 19
institutions averaged 22 percent more in overtime expenditures than those
institutions not operating under special missions when we control for
population size. It is not clear why the institutions with special missions
experience more overtime than the other institutions, though it may be that
these activities require higher levels of staffing but are not budgeted
accordingly.

Some prison activities often result in overtime costs. In particular, CDC
policies and administrative decisions regarding the staffing for medical
guarding, transportation, and "administrative segregation overflow"
regularly require the usage of overtime by officers and cause high overtime
costs.

Medical Guarding.
Institutions have to transport some prisoners to local hospitals and
clinics for specialty health services that the prisons cannot provide. The
CDC spent over $26 million in overtime for medical guarding in
2002-03. These expenditures covered the costs of providing a team of
correctional officers to transport inmates between the hospital and prison
and supervise them while in the hospital. Often, the length of time
required to complete the medical guarding and transportation requires
officers to work beyond their scheduled eight hour shift, thereby
generating overtime costs.

Transportation.
The department transports inmates for a variety of reasons, including
assignment from a reception center to a mainline institution, reassignment
to a different institution, release from prison to their home county, and
attendance at legal proceedings. Many of these trips can last longer than
an officer's assigned shift, thereby requiring overtime. In 2002-03,
department overtime expenditures for transportation were
$2.3 million.

Administrative
Segregation Overflow. All prisons have temporary housing for
inmates who, for a variety of reasons, need to be separated from the
general population. This housing is referred to as administrative
segregation (or "ad seg") and requires more correctional officer
staffing than traditional housing in order to supervise and escort these
inmates. Ad seg overflow occurs when more inmates are assigned to ad seg
than there are cells available, and prison administrators temporarily
convert a housing unit designated for another population to ad seg. This
additional housing for ad seg is referred to as ad seg overflow. The
department experiences overtime expenditures for ad seg overflow because
institutions do not receive additional funding for the increased officers
necessary to supervise the overflow into additional housing units. The CDC
was unable to provide information on the total overtime costs attributable
to ad seg overflow in 2002-03. However, anecdotal evidence suggests that
the use of ad seg overflow is a regular occurrence at many institutions.

The department's institution staffing formula does not adequately reflect
the staffing requirements associated with various inmate populations and
institution activities. Instead, after establishing the base staffing level
necessary to operate the institution—based on population, prison design,
custody level, and missions—staffing grows by a ratio of one employee for every
six inmates above the 100 percent capacity level. While this overcrowding
staff can be made up of any mix of personnel to which the institution and
administration agree, the fixed one employee to six inmate ratio does not take
into account the variation in populations, activities, and prison design at
different institutions. For example, similar growth in Level I, General
Population inmates and Level IV, mentally ill inmates would result in the same
total staffing increases even though the two populations would require very
different supervision and programming. We believe that this fixed ratio may
work to drive some overtime costs because it may be difficult for those
institutions serving high custody inmates and multiple missions to meet all of
their staffing needs with the same ratio as other institutions.

Based on the findings described above, we offer a number of
recommendations for reducing CDC's overtime expenditures. The recommendations
include filling noncorrectional officer posted position vacancies,
renegotiating provisions of the correctional officer contract, reexamining how
the department staffs prisons, and improving the accountability of individual
institutions to control overtime spending. We believe that these
recommendations will result in net fiscal savings for the state by
significantly reducing the department's overtime costs.

While significant progress has been made in filling correctional officer
vacancies, we recommend that the Legislature adopt supplemental report language
requiring the department to identify cost-effective ways to fill vacancies in
its other posted positions, especially in those posted position classifications
that have the highest vacancy rates (sergeants, lieutenants, and medical
positions). The department already offers some recruitment and retention
bonuses and has centralized its efforts to recruit qualified medical personnel.
However, the department should identify other means of improving its
recruitment efforts in order to fill its vacant positions. In so doing, the
department could generate net savings by filling these positions at a regular
salary level, rather than paying the overtime premium. In addition, filling the
posted medical positions will reduce the costs to the department for
contracting for medical personnel. It is important to note, however, that the
difficulty the department has at hiring and retaining qualified medical
technical assistants and registered nurses is part of a broader trend facing
other state departments and local hospitals and clinics. Therefore, statewide
action may be necessary to fully address this problem.

The state's current fiscal situation has forced it to revisit employee
contracts with most unions, and a number of changes have been made to those
agreements. In addition, the new administration has indicated a desire to
renegotiate contracts to generate budget savings. At the time this analysis was
prepared, no change had been made to the correctional officers contract. We
recommend that the DPA renegotiate provisions of the correctional officer
contract that have contributed to increased overtime expenditures. Specifically,
DPA should negotiate to reinstitute the department's program to monitor and
discipline sick leave abuse, eliminate the preference given to senior officers
for voluntary overtime, and remove the limits on the use of PICOs. These
changes, as well any reduction to or delay in correctional officer salary
increases, would generate net savings to the General Fund by significantly
reducing department overtime costs.

We recommend the adoption of budget bill language requiring the department
to identify a more efficient way of distributing staff resources. Our analysis
indicates that some factors of the prison population (for example, custody
level and inmate assaults) and prison activities (for example, special missions
and administrative segregation overflow) significantly contribute to overtime
expenditures. However, the department relies upon a fixed ratio of one staff
per six inmates to determine the staffing level in individual prisons. It does
not take these other factors into account. This is significant because it
suggests that staffing may not be directed in the most efficient way to meet
the varying staffing requirements of institutions, thereby contributing to the
department's high overtime expenditures. A more effective approach to staffing
might be to replace the fixed staffing ratio with variable ratios that reflect
the staffing requirements dictated by differences in populations and
activities. The department should also present to the Legislature its policies
on how it staffs medical guarding, transportation, and administrative
segregation overflow and determine a less costly way to staff these activities.
The following budget bill language is consistent with this recommendation:

5240-001-0001 Provision X. No later than January 10, 2005, the Department of
Corrections shall submit to the Chair and Vice Chair of the Joint Legislative
Budget Committee, and the Committee on Budget in both the Assembly and Senate,
a report identifying ways to reduce overtime costs caused by the inefficient
staffing of state prisons. In particular, this report should identify the
fiscal impact of the current staffing ratio used to staff prisons and
alternative staffing procedures that would generate state savings, including
less costly staffing methods for transportation, medical guarding, and
administrative segregation overflow.

The administration has indicated its intent to utilize better cost control
procedures to manage CDC's spending and improve the fiscal accountability of
the department. The relief factor proposal (described later in this chapter) is
one part of this plan, and the department indicates that more aspects of the
plan will be released as part of the May Revision. We recommend that the
administration provide this information to the Legislature prior to the May
Revision so that it will have adequate time to review it. The plan should
detail how it will address the overtime problem, particularly the variation in
overtime expenditures across institutions. While much of the disparity in
overtime expenditures at different prisons can be attributed to factors such as
special missions and custody level, these factors do not explain all of the
variation in overtime costs, suggesting that institution management plays a
critical role in controlling overtime spending. For example, the R.J. Donovan
(RJD) Correctional Facility and Wasco State Prison (WSP) are similar
institutions in that both are male, level III institutions with a reception
center and have an above average number of assaults. Yet, while WSP operates
with a larger population than RJD, Wasco's overtime expenditures totaled
$6.1 million while expenditures at RJD were $9.8 million, a
difference of 61 percent. The administration should identify in its
forthcoming plans ways to better control overtime spending at individual
prisons. This could include, for example, changing the overtime authorization
process for prison supervisors, improving the effective utilization of fiscal
management systems by institutions, and creating incentives for prison
administrators to stay within their overtime budgets.

We withhold recommendation on the Governor's proposal to increase
funding by $99.5 million and 1,239 relief positions to fill in behind
officers who are on leave because the administration has not provided
sufficient details about key aspects of the request to allow for legislative
review. We recommend that the Legislature require the department to provide
more detail on this proposal prior to budget hearings, including the estimated
savings from reductions in overtime costs, the distribution of positions to
institutions, and the administration's fiscal control proposal.

Posted Positions. The CDC is charged with the responsibility
for the custody and care of state prisoners. In order to carry out this
mission, the department must have sufficient staffing to supervise and treat
inmates 24 hours a day, seven days a week. For this reason, many positions in
prisons are "posted" positions, work assignments that must always be
filled. In other words, if a posted position is left vacant because the
employee normally in that assignment has taken a vacation or sick leave, for
example, then another employee would have to fill that position for the day.
Most posted positions in institutions are correctional officer assignments,
though there are also correctional supervisor, medical, and cook posted
positions.

Posted Position Relief. The department is able to estimate the
average number of days that officers typically take off for various leaves,
including regular days off (RDO), holidays, vacations, and sick leave. For
example, a guard tower that needs to be staffed during one shift, seven days a
week will have one officer assigned to that position, but he will need other
officers to fill in twice each week on his RDOs. Based on statewide averages
for correctional officers, the officer will also need relief for another 43 days
each year because of holidays, vacation, and sick leave.

Relief Factor. The department uses the information on average
relief required for RDOs, holiday, vacation, and sick leave to compute a relief
factor. For example, the relief factor for most correctional officer positions
is 1.67. This means that in order to staff that posted position seven days a
week, the department requires not only the full-time officer assigned to that
post, but also the equivalent of 67 percent of another full-time officer for
relief. This factor is used by CDC to estimate the total number of employees it
requires to offer relief for posted positions. The CDC then requests funding in
the budget commensurate with this level of staffing.

The Governor's budget requests 1,239 new relief positions at a General Fund
cost of $99.5 million in 2004-05. The proposal has two components.

Additions Related to
Past Reductions—$15.3 Million and42 Positions.The
proposal adjusts for past budget reductions to ensure full funding and
staffing of the 1.67 relief factor. These adjustments total
$15.3 million and 42 positions. Of this amount, $2.8 million and
42 positions are to establish positions requested to achieve the 1.67
relief factor, but not approved in the 2001-02 Budget Act. The
remaining $12.5 million is meant to backfill for relief funding that
was redirected to fund vacant positions in the 2003-04 Budget Act.

Increase Relief Factor
for Additional Leave Programs—$84.2 Million, and 1,197 Positions.
The department also proposes funding and positions to increase the relief
factor to 1.76 for correctional officers, sergeants, and lieutenants. This
increase reflects additional leave programs that are sanctioned by the
department and used by officers, but that are not included in the current
relief factor of 1.67. These include military, bereavement, and family
medical leaves, as well as officer training and result in about 10.5
additional days of leave. The department also proposes to make annual
adjustments to the relief factor to reflect actual usage patterns.

Figure 5 shows how the proposed relief factor is computed
for a full-time correctional officer post. The relief factor is computed for
each type of leave by dividing the number of days for each leave category—for
example, vacation, 16.51—by the number of days in a personnel-year (PY) (207.72
days). Totaling the resulting relief factors gives the total relief factor for
the position.

The department states that the increased relief factor is necessary to
provide adequate staffing behind officer positions and will provide two fiscal
benefits. First, the staffing of more relief officers will allow officers to
take more of their allotted vacation time than they do currently, thereby reducing
the bank of accrued leave that the department must pay out when officers leave
the department. These payouts can be particularly expensive because the accrued
leave balance is paid at the salary level of the employee when he/she leaves a
department, which can be a higher pay rate than when the leave was initially
earned.

Second, the department argues that the increased relief staffing levels
should reduce its reliance on overtime and temporary help. Prison
administrators rely on overtime and Permanent Intermittent Officers—temporary,
part-time officers—when full-time relief officers are not available. The CDC is
currently running deficiencies in both overtime and temporary help totaling
$79 million.

While more relief positions are probably necessitated by the leave
usage types and rates identified by the department, the relief factor proposal
lacks sufficient detail. To allow for legislative review, we recommend the
department be required to provide a more detailed plan prior to budget
hearings.

Implementation and Fiscal Details Lacking. The 32 state
prisons operated by CDC each have unique characteristics. For example, they
vary in their design and mission, the size and makeup of their workforce, and
the amount of overtime that is required of staff. Prisons also vary in their
leave usage patterns, including average rates of sick leave and vacation.
Cumulatively, these factors make a significant difference in the requirements
for staffing at each prison, including the number of relief officers.

Despite these differences, the department's plan does not detail how it
would distribute the proposed 1,239 positions among its 32 institutions. The
department has suggested that at some future time it intends to
create separate relief factors for each prison. We agree that this would be an
effective approach to accounting for the variation in relief required at
different institutions. However, no details of such a plan are provided.

In addition, while the department claims that the relief factor proposal
will have certain fiscal benefits to the state, it does not provide an estimate
of how much the proposal will reduce spending for leave balances, overtime, and
temporary help. The lack of such information makes it difficult for the
Legislature to (1) assess the proposal's full fiscal impact and (2) hold the
department accountable for achieving the suggested results.

Department May Lack Necessary Fiscal Controls. The
administration suggests in the Governor's Budget Summary that it will
propose fiscal control measures designed to enable CDC to better manage how
positions are used at institutions. We agree that the decentralized nature of
CDC, autonomy of individual institutions, and limited fiscal tools by central
management has historically limited the ability of CDC headquarters to control
institution spending. In light of the department's fiscal control problems, we
are concerned that CDC may lack the necessary fiscal controls for institutions
to ensure that the proposed relief positions are utilized as intended by each
institution.

Training Provision of Correctional Officer Contract Biggest New Cost
Driver. The current bargaining contract with the correctional officer
union requires that, beginning in 2004-05, the department provide monthly
officer training during officers' normal work schedule rather than off-schedule
as is done currently. As with leaves, this training requirement will
necessitate that the department fill positions with relief officers during
those hours. More than half of the total cost of the additional leave programs
is a result of this contract provision. The administration has already
indicated that it will seek to renegotiate provisions of the correctional
officer contract in order to generate state savings. Returning to the former
practice of requiring correctional officers to participate in training outside
of their normal scheduled hours would reduce the cost of this relief factor
proposal by approximately $50 million annually.

To enable the Legislature to fully assess this proposal, we recommend that
the Legislature require CDC to provide a detailed plan of how it will implement
the relief factor proposal and what reductions in spending would be achieved.
We also recommend that the department report prior to budget hearings regarding
the details of its fiscal control and accountability proposal for CDC.
Specifically, the administration should address how provisions of its fiscal
control proposal will impact the implementation of the relief factor proposal
at state prisons. Finally, in light of the magnitude of the current request and
the state's fiscal challenges, the Legislature may wish to direct the
department to provide a plan for phasing in the relief factor proposal over
time.